Consider a multi-sector economy subject to an exogenous demand shock that alters the equilibrium structure of relative prices. How should the structure of sectorial wages adjust in response to such a shock? This question is addressed in the context of a multi-sector model of an open-economy...

The volatility of the exchange rate under floating rates can be interpreted in terms of approaches that allow for short term price rigidity as well as in terms of models that consider the magnification effect of new information. This paper combines the two approaches into a unified...